St George defeats tax on shareholder buyback rights

St George Bank's 130,000 shareholders have claimed a rare win against the tax office after the Federal Court found that they should not be taxed on value of rights granted to them as part of a $375 million off-market share buyback in February 2001.

The bank has been fighting the Australian Taxation Office ever since, on behalf of shareholders who earned income from the value of the rights. On Wednesday, in an important test case, the court held that they should now be able to reclaim the tax paid.

However, since the Commissioner of Taxation can lodge an appeal within 21 days, the bank is advising shareholders to sit tight for the moment.

The rights allowed shareholders to participate in the buy-back if they chose, by selling one share into the buyback for every 20 held.

When the rights were granted, the tax office immediately claimed the rights were assessable income under a "class ruling".

Subject to whether an appeal is lodged, shareholders are likely to have to request a reassessment on their next tax return. But a bank spokesman said shareholders would be advised about the best course of action to reclaim the tax.

St George shares fell 36c to $20.60 yesterday, having fallen from close to $22 last month.

UBS recently lowered its rating to neutral, citing the share price's high correlation to falling auction clearance rates amid signs that the home-lending boom is starting to unwind. The broker said the bank was at a critical juncture after four years of strong productivity gains and high earnings per share growth. It would have to deliver strong revenue growth to continue the momentum.

St George is also embarking on interstate expansion, but its plans look less ambitious than those of some of its regional banking peers.